How the cookie crumbles. Just what are those computer cookies that can track your every movement on the Web, and what can you do about them?

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STEVE LUCAS, CHIEF INFORMATION OFFICER, PRIVASEEK: The way you disable cookies is through the browser.

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PELTZ: A recipe for protecting your privacy on the Internet.

And a chilling Web site that at first glance not only invaded a woman's privacy, it invaded her apartment. But there's more to this site than meets the eye.

All that ahead on CNNdotCOM.

ANNOUNCER: CNNdotCOM, with Perri Peltz and James Hattori.

Welcome to CNNdotCOM. I'm Perri Peltz.

You could call it a game of cat and mouse -- computer mouse, that is. After a week of back and forth, the antitrust battle between Microsoft and the government appears to be near an end. The judge in the case is giving both sides until next week to settle their difference in an out-of-court deal. After that, though, he is ready to issue a verdict.

Just how did the software giant, the Feds, and a coalition of states get to this point? For an in-depth look at the 10-year tug of war, let's go to our cover story.

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UNIDENTIFIED MALE: Microsoft has the power today to exercise predatory and exclusionary...

GATES: There is a very key principle, and that is whether a company is allowed to innovate in its products...

UNIDENTIFIED MALE: Microsoft is the Tonya Harding of American commerce.

UNIDENTIFIED MALE: The government ought to drop this case. They ought to stop wasting public resources.

PELTZ (voice-over): Microsoft's troubles with the United States government began a decade ago.

(BEGIN VIDEO CLIP, 1990)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: Panama is free.

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PELTZ: George Bush was still president. Most people had never heard of the Internet in 1990, and less than 1 percent of the American public even had access to it. Today, almost 50 percent of all U.S. households can log on.

In 1990, Microsoft was celebrating its 15th anniversary when the Federal Trade Commission begins investigating whether the growing software giant is monopolizing the PC market. The claim is that Microsoft is deliberately creating hidden codes in its operating system to hinder competing applications.

GATES: You're damning yourself. I mean, according to this...

PELTZ: After nearly a three-year investigation, the FTC deadlocks twice over filing a formal complaint against Microsoft for antitrust infringements. The FTC closes the investigation, but the Justice Department takes over.

PELTZ: But by 1994, Microsoft and the Justice Department reach a settlement requiring the software company to allow other competitors free access to PC makers without penalty. RENO: While the company fairly and lawfully climbed to the top of the industry ladder, it used unfair and illegal practices to maintain its dominant position.

WILLIAM NEUKOM, MICROSOFT ATTORNEY: That's their characterization. We do not believe that we've ever had a monopoly, we don't believe that anything we've ever done is unlawful.

PELTZ: Publicly, Microsoft remains defiant, but happy to have avoided a lengthy lawsuit with the government.

Bill gates is happy too, because 1994 is the year he marries co- worker Melinda French, and Microsoft continues making him the richest man in the world.

The public euphoria continues for Microsoft with the launching of Windows 95. But something else is happening in 1995 that changes Gates's euphoric mood.

UNIDENTIFIED MALE NEWS CORRESPONDENT: When the stock did open, it went from 28 to 71 almost immediately. The share price would peak at 75...

PELTZ: Netscape Communications' phenomenal success with its Navigator browser in the summer of '95 has Microsoft working overtime to make its own Internet Explorer more competitive.

JAY LENO, HOST: This is a man, a man so successful his chauffeur is Ross Perot, ladies and gentlemen.

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PELTZ: William Henry Gates III is becoming the source of enormous fascination to Americans. Born in Seattle in 1955, just a few miles from Microsoft's current location, young Bill becomes a computer programmer at 13. Addicted to computers, he goes to Harvard but soon drops out to form a computer company with Seattle friend and Harvard classmate Paul Allen.

Their first success, a basic operating system they call MS-DOS. The empire is born.

But with Gates's success comes lots of public scrutiny and resentment, and using technology that he helped to revolutionize, Gates also gets publicly bashed on the Web.

Competitors start bashing Gates too. Compaq, the world's largest personal computer maker, claims Microsoft threatens to cancel its Windows contract unless it installs the Microsoft browser, Internet Explorer. JOEL KLEIN, ASSISTANT ATTORNEY GENERAL: This kind of product forcing is an abuse of monopoly power, and we will seek to put an end to it.

PELTZ: Finally, October 20, 1997, the Justice Department has heard enough and charges Microsoft with violating the 1994 court- approved settlement. It sues Microsoft for antitrust violations. The Internet case of the century is on.

GATES: And we think that there's certainly got to be a way to resolve it that's fair to Microsoft, fair to the government, and most of all, fair to consumers.

RENO: If Microsoft insists on including its browser on Windows 98, it should also include Netscape's browser.

PELTZ: Weeks later, some 19 states, including California, New York, and Connecticut, also join the government's suit against Microsoft, all charging antitrust violations.

BLUMENTHAL: What we are saying to Bill Gates in a very real sense is, Stop your 800-pound gorilla from blocking access to the Internet information superhighway.

PELTZ: By the summer of '98, the U.S. Senate Judiciary Committee holds hearings listening to complaints about Microsoft's strongarm tactics.

UNIDENTIFIED MALE SENATOR: How many of you use a PC without Microsoft's operating system? Gentlemen, that's a monopoly.

PELTZ: Netscape's then-CEO, Jim Barksdale, is the first of 28 witnesses to testify at the federal trial against Microsoft.

JIM BARKSDALE, FORMER NETSCAPE CEO: We just want a more competitive software industry.

PELTZ: By November, the first of 20 hours of Bill Gates's video testimony is shown.

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GATES: Are you asking me about when I wrote this e-mail, or what are you asking me about?

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PELTZ: His claims of often not remembering key internal discussions seem to backfire during the trial.

ELIZABETH WASSERMAN, "THE INDUSTRY STANDARD": Even the judge, the -- who was presiding over the case, Thomas Penfield Jackson, had to chuckle during -- while the Justice Department played some of that videotape in court.

(BEGIN VIDEO CLIP) GATES: I don't know, what do you mean, "concerned"?

UNIDENTIFIED MALE INTERROGATOR: What is it about the word "concerned" that you don't understand?

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PELTZ: Elizabeth Wasserman is a reporter for the Internet magazine The Industry Standard. She covered the entire Microsoft trial, all 76 days of its testimony, and says in the end, the recovered e-mails did Microsoft in, and were specifically used against Gates himself.

WASSERMAN: Time and again, he was confronted with sometimes his own words in e-mail that he claimed not to recall writing.

PELTZ: During the early part of the trial, AOL announces it is buying Netscape for more than $4 billion. Microsoft uses the sale to support its argument that Netscape was never weakened by any of its tactics.

UNIDENTIFIED MALE: The proposed deal demonstrates a simple truth, that there is vigorous competition in the marketplace.

PELTZ: Finally, on November 5, 1999, Judge Thomas Penfield Jackson issues his 207-page findings of fact, a scathing conclusion, that Microsoft wields monopoly power, that it abuses its dominance in the marketplace, and finally that consumers have been harmed.

RENO: This is a great day for American consumers.

PELTZ: But for others, Microsoft has simply advanced technology and made life easier through its innovations.

WILLIAM KOVACIC, GEORGE WASHINGTON UNIVERSITY: Microsoft, in including Internet functionality in its operating system, has benefited consumers by enabling them to get on the Web more quickly, at less expense. And that clearly is a very concrete benefit to consumers.

PELTZ: Still, others debate that in the end, consumers will win only if more competition is legally forced upon the marketplace.

GLENN MANISHIM, ANTITRUST ATTORNEY: If the government is able to nip Microsoft's monopoly power, to constrain it and stop it, we'll see a birth of new competition in ways that we can't even fathom yet.

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PELTZ: If there's no settlement in the case, Judge Jackson will hand down what are called conclusions of law, essentially a verdict on whether Microsoft violated antitrust laws. If the judge does rule against the company, he'll decide on a punishment in yet another phase that could include a new round of courtroom arguments and testimony. And Microsoft has vowed to appeal all the way to the Supreme Court.

So get ready, the never-ending story continues.

And so do we, in a moment.

ANNOUNCER: For more information on Microsoft, check out IDG.net/Microsoft.

CNNdotCOM will be right back.

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ANNOUNCER: From the Tech Museum of Innovation in San Jose, here's James Hattori.

JAMES HATTORI, CO-HOST: News in the Internet era changes in a nanosecond. Now, while we can't exactly track developments at the speed of light, we can keep you up to date as to what's happened over the past few days.

Here's this week's "NewsFiles."

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(voice-over): Stalked in cyberspace. Log onto the Web site Fortheloveofjulie.com, and you'll see a creepy shrine to a woman named Julie set up by a stalker. Her admirer, a video store clerk, has posted love poems to her, as well as a running log of all her activities, complete with video clips and pictures. He's apparently followed her to work, broken into her apartment, even checked out what's in her fridge.

So when a detective with the L.A. Computer Crimes Division stumbled across the Web site, he started tracking the stalker's trail. It led to another Web site called Creepysites.com. Turns out the stalking site is completely fake, a la "Blair Witch Project." The detective missed a small disclaimer saying the site "may contain fictionalization." Can't wait for the movie version.

Mya personal assistant. Are you like Murphy Brown, having trouble finding the perfect executive assistant? Enter Mya, cyberworld's answer to all of us without a corner office. You might have seen her walking the red carpet in the Motorola commercial aired during the Academy Awards and wondered, who's that?

Well, Motorola's introducing a virtual assistant who, for a fee, keeps track of your phone numbers, remembers your appointments, and even accesses selected Web sites, all by your voice commands. Just don't expect her to get you coffee or pick up your dry cleaning.

Dueling IPOs. Two of the latest dot-com IPOs serve, well, opposite ends. Playboy.com, the online arm of the adult magazine publisher, is going public. The Web site offers the cyberequivalent of "Playboy"'s print version, including Playmates and interviews along with online chats.

Playboy.com's existence could explain this week's IPO for Websense.com. The Internet software company allows businesses to monitor how their employees use the Internet and limits what sites they can visit. So for those of you who want to read "Playboy" on line at work, or the articles, of course, you may be out of luck.

Irish eyes are surfing. In a completely different vein, the Irish Catholic Church is going online in an attempt to find young men who might have a cybercalling. An average of only 50 to 60 new priests are donning the collar each year, one fourth the number four decades ago. At Towardsthegoal.com, the archdiocese is using a soccer-themed Web site, hoping that it can score its goal of finding risk-takers to fill the pulpit in its 56 parishes. Maybe they can hear online confessions.

And that's this week's NewsFiles.

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ANNOUNCER: Just ahead on CNNdotCOM, a computer primer on privacy.

LUCAS: The first and foremost thing that consumers need to do is be aware of the practices of the sites that they go to.

ANNOUNCER: A hands-on approach to keeping other people's hands off your personal information.

CNNdotCOM will be right back.

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PELTZ: Imagine this scenario. Suppose you're researching a medical condition like diabetes, and you go to the Internet to find out more about the condition. That information then ends up in an insurance company's database, and you are suddenly labeled an insurance risk.

It could happen. Private information can be collected about you while surfing the Net, and you don't even know it. So what can you do about it?

LUCAS: I think the first and foremost thing that consumers need to do is be aware of the practices of the sites that they go to. And the best way to do that is, when you go to the site, look at their privacy policy.

MARY KATHLEEN FLYNN, CNN CORRESPONDENT: I think those privacy policy statements are important too, but I've also read reports that say there may be a big discrepancy between what the Web site says it's doing and what it's actually doing in practice.

LUCAS: The government has regulations under the FTC guidelines that they can go after sites that don't do what they say in their privacy policies. What they -- I think consumers should really look for are sites that are certified.

Here we're going to Excite. If we go down to the bottom of the page, which is typically where the privacy statements are, and we click on a privacy statement, that will take us to the site's privacy policy, and over here the consumer can read about what information is collected, what the site intends to do with the information, what happens if they feel that their information has been compromised, you know, who to contact.

And moreover, they can also make sure that the site is actually certified by the organization. In this case, Excite is certified by TRUSTe. What TRUSTe does is, they go through a very rigorous assessment when you apply for the seal. It doesn't necessarily deal with the quality of the privacy statement, but what it does do is, it says that this site has contractually signed an agreement with TRUSTe that they will disclose accurately what their practices are.

FLYNN: Let's talk about cookies. They've certainly gotten a bad rap of late. What's a cookie, and what's the best way to treat cookies if you're a user out there surfing the Web?

LUCAS: Cookies are a technology. They're a small text file that's placed on your computer. And there are really two kinds of cookies.

The first kind of cookie that is not necessarily that nefarious is a cookie that's placed on your machine for what's called state management. And what that really is all about is the cookie can tell sites what kind of browser you have, whether you have certain plug-ins or not, what version of the operating system, so that they can provide a more effective content for you. No personally identifiable information is collected.

The second type of cookie is the one we hear most about, and that type of cookie is used in many cases to collect information like where you've been on the Web, the kinds of things that you might have purchased when you've gone to sites, and in some cases it can send a large amount of personally identifiable data back. It can capture things like your name, your address, your e-mail address.

FLYNN: How do you recommend that people handle cookies?

LUCAS: Well, there's a variety of resources out on the Web that can assist consumers in managing their cookies. One good example is a site called Cookie Central. What Cookie Central does is, it not only does it provide you with a lot of information, but it provides you with a lot of useful tools. You know, for example, so -- many consumers don't know where the cookies are on their system. And what this, this site does is, it allows you go to through, and you can actually see the kind of cookies that have been placed on your site (ph).

So (UNINTELLIGIBLE) they can be literally hundreds of thousands. Where it gets a little more difficult is if a consumer wants to understand what's inside their cookie. And as you can see, it's quite, quite cryptic.

FLYNN: Cryptic code, yes.

LUCAS: You bet. Typically, again, this is the user ID of the user. These next few numbers and letters are basically a code that's placed there by the company. The only entity that can read that code and understand it is the company that placed the cookie.

FLYNN: So I really have no idea what information they've collected about me in this file.

LUCAS: Absolutely not.

You have the option in most browsers to not only disable cookies, but you can also have the browser notify you in -- if a company wants to place a cookie, and you can decide to accept or reject them.

FLYNN: On a case-by-case basis.

LUCAS: On a case -- on a site-by-site basis, sure. And the way you do that in Internet Explorer is, you go into Tools and you click on Internet Options. You would click on Security, and at this point we want to go and customize. So here we have three choices. We can disable cookies, which means no cookie can be placed. We can enable, which obviously is accepting cookies. And then we can have the browser prompt us (UNINTELLIGIBLE)...

FLYNN: For a middle ground.

LUCAS: For a middle ground, because there may be cookies, again, that we do want to accept, for example, at a site where we don't want to remember our log-in name and our password.

Let's go to Excite, OK. And let's see if we can find something here that is going to try to serve us a cookie.

FLYNN: An ad on...

LUCAS: Here we go. And what it's saying here is, they want to provide us a more personalized experience, and they're asking us whether we will accept the cookie. Now if we said yes, basically we wouldn't get any more, more prompts.

FLYNN: On that Web site?

LUCAS: On...

FLYNN: You wouldn't get any more prompts, or any Web site?

LUCAS: On -- on that particular Web site. But we're going to say no here and see what happens. And we're going to get another. And we're going to get another.

FLYNN: So basically we can't see anything on that ad unless we're willing to accept a cookie.

LUCAS: Right. We can't actually go to that site is what -- because when you click on an ad, what it's doing is, it's redirecting you typically to the site that is displaying the ad, OK? So that site obviously requires the use of cookies.

FLYNN: Beyond going into the browser and disabling cookies or even setting up a case-by-case basis, what else can I do to manage my cookies?

LUCAS: It's -- there, there's a val -- a variety of software that's available on the Web, and most of it's free of charge. You can download it to your computer, and what the software does is, it helps you manage your cookies. It helps you do things like selectively decide what sites you're going to accept cookies from. It allows you, again, to reject all cookies. It allows you to view the cookie in more of a user-friendly way.

If consumers are very, very privacy sensitive, then I think it's a good idea to download some of these software programs, and then make a decision based on your surfing habits as to whether or not these, these software programs provide any value for you.

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ANNOUNCER: Up next on THE DOT, IDG's NerdWord. This week's lesson in cyberspeak, check bits. Check it out for a bit of technotrivia.

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PELTZ: And now NerdWord. Munch on this week's food for thought, check bits. No, it's not the breakfast of champions for technogeeks, and no, it's not what was formed after the communist country of Czechoslovakia split in two.

Check bits are extra bits or binary units of information that can tell if data has been lost or garbled when it's been saved or transmitted.

Many systems add check bits that can even recreate information that's been lost. In other words, check bits are like a protector making sure what you send is going to arrive the way you sent it. So if you don't want your information lost in cyberspace, check into check bits.

More byte-sized information you can chew on after this.

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PELTZ: That's it for this week. Coming up next week, using body parts as passwords.

UNIDENTIFIED MALE: Right now, the computer's taking a picture of your iris.

UNIDENTIFIED FEMALE: So this is kind of like a fingerprint.

PELTZ: Is it a brave new world of high-tech security, or a tool for Big Brother to keep an eye on you?

And tell us if you're keeping an eye on us. Our e-mail address, thedot@cnn.com.

Thanks so much for watching. For all of us here at THE DOT, I'm Perri Peltz, and we hope to see you again next week.

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